California Health Insurance Exchange – Update

California Health Insurance Exchange – Update

I recently had the opportunity to hear Susan Kennedy speak at the Milken Institute Forum entitled: Federal Health Reform: Can It Achieve Its Goals? Susan Kennedy was Gov. Schwarzenegger’s chief of staff and she is his appointee to the board that will oversee the California Health Benefit Exchange. She was also deputy chief of staff for Gov. Gray Davis. Here is a link to a video of the California Health Insurance Exchange presentation.

I was very impressed with Ms. Kennedy. Anyone interested in the future of health insurance of California should watch the presentation. Hat’s off to the Milken Institute for putting on this event. The Milken Institute has an amazing ability to gather the people at the center of major public policy decisions and allow the public to watch, listen, and ask questions. All Californians and all Americans owe a huge debt of gratitude to the Milken Institute.

Ms. Kennedy said that the most important goal of the exchange is to control the cost of health insurance. She said that people will face sticker shock when they look at the premiums that they are required to pay in 2014. This may awaken people to the true cost of health care.

Ms. Kennedy pointed to the changes in the Workers Compensation system that drove millions of dollars of waste from the system. She’s hoping they can do that with health insurance.

To control costs, Ms. Kennedy said that the Exchange will be focused on not allowing adverse selection to occur. Accordingly, they want to make sure that the commercial/private market for insurance can only sell the same benefit plans for the same price as in the exchange.

I have heard legislators and staff voice the same fear: that health insurance companies will “dump bad risk into the exchange.” Ironically, in my opinion, the California Health Benefit Exchange should really fear itself more than it should fear insurance companies regarding adverse selection. Consider this:

1) On January 1, 2014, day 1 of the exchange, all of the enrollees in the MRMIP and PCIP high risk pools will automatically be enrolled in the exchange. By definition these enrollees will use lots of health care and will increase utilization and rates in the exchange.

2) Further, legislative staff and academics who drafted the California Health Benefit Exchange legislation want to encourage people to enroll at any point they touch the health care system: it can be through a broker; it can be on the government web site; it can be at the doctor’s office; at the hospital or a community clinic. Anyplace people want to enroll, the government wants to enable their enrollment. Here’s the problem: enrolling people at the hospital is THE definition of adverse selection.

Why would anyone ever purchase insurance if they knew that the hospital would enroll them after arriving in an ambulance? This sort of enrollment process encourages people to wait to enroll until – and only – when they are sick or injured. This will drive up rates in the exchange.

Personally, I wonder why an insurance company would want to participate in the exchange. Insurance only works when there are many more healthy people paying into the system to offset the cost of a few unhealthy people. Health insurance companies need healthy new members – NOT new members with pre-existing medical conditions.

An exchange that starts with a base of high risk members then enrolls people at the hospital; is likely to include mostly high users of health care services – this is expensive and the rates will reflect this.

I certainly hope that the exchange board succeeds in setting up a system where health insurance is affordable. They have their work cut out for them.

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